December 31
2017 2016
Number of shares authorized (in thousand) 6,700,000 6,700,000
Share authorized $ 67,000,000 $ 67,000,000
Number of shares issued and fully paid (in thousand) 3,980,000 3,580,000
Share issued $ 39,800,002 $ 35,800,002
Reconciliation of outstanding shares:
Shares
(In Thousand) Capital
January 1, 2017 3,580,000 $ 35,800,002
Issuance of ordinary shares 400,000 4,000,000
December 31, 2017 3,980,000 39,800,002
January 1, 2016 3,580,000 $ 35,800,002
December 31, 2016 3,580,000 $ 35,800,002
As of December 31, 2016, the balance of the Company’s capital account amounted to $35,800,002 thousand, divided into 3,580,000 thousand shares with a par value of NT$10.
On September 7, 2017, the Company’s board of directors resolved to issue 400,000 thousand ordinary shares for the need of production capacity expansion, with a par value of NT$10. On October 16, 2017, this resolution was approved by the FSC. The consideration of NT$22 per share was determined as at October 24, 2017, by the Chairman authorized by the board of directors which increased the share capital issued and fully paid and the subscription base date was determined as at December 15, 2017. The cost of issuance of the shares amounted to $12,327 thousand and was recorded as a reduction of capital surplus arising from the issuance of share capital. As of December 31, 2017, the balance of the Company’s capital account amounted to $39,800,002 thousand, divided into 3,980,000 thousand shares with a par value of NT$10.
b. Capital surplus
December 31
2017 2016
May be used to offset a deficit, distributed as cash dividends, or
transferred to share capital
Arising from issuance of share capital $ 5,026,873 $ - Arising from treasury share transactions 2,342,036 2,299,513
Arising from conversion of bonds 136,352 136,352
May be used to offset a deficit only
Arising from changes in percentage of ownership interest in
subsidiaries 6,042 6,042
Arising from share of changes in capital surplus of associates 29,137 29,137
$ 7,540,440 $ 2,471,044 The capital surplus generated from the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers and convertible bonds) may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or stock dividends up to a certain percentage of the Company’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries and associates may be used to offset a deficit;
however, when generated from issuance of restricted shares for employees, such capital surplus may not be used for any purpose.
c. Retained earnings and dividend policy
In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees, directors and supervisors. The shareholders held their regular meeting on June 13, 2017 and June 16, 2016; in that meeting, had resolved amendments to the Company’s Articles of Incorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and the addition of the policy of employees’
compensation and remuneration to directors and supervisors.
Amendments of the Company’s Articles of Incorporation was summarized as follows:
From the pre-tax net profit of the current year, before deducting remuneration of employees and remuneration of directors, no more than 1% shall be allocated as remuneration of directors and no less than 1% as remuneration of employees. The remuneration of employees may be distributed in stock or cash upon resolution of the board of directors, and may be distributed to the employees of subsidiaries of the Company meeting certain criteria.
However, if the Company has accumulated losses, the Company shall first set aside an amount for making up losses, and then allocate remuneration of employees and remuneration of directors according to the percentage set forth in the preceding paragraph.
Before establishment of the audit committee, supervisors’ remuneration shall be incorporated into directors’ remuneration for the purpose of calculation of the distribution ceiling of the directors’
remuneration provided in the first paragraph.
The board of directors is authorized to determine the “employees of subsidiaries of the Company meeting certain criteria” set forth in the first paragraph or the board of directors may authorize the Chairman of the board of directors to determine the “employees of subsidiaries of the Company meeting certain criteria” set forth in the first paragraph.
If the Company has pre-tax profits at the end of the current fiscal year, after paying all taxes and covering all accumulated losses, the Company shall set aside 10% of said earnings as legal reserve.
However, legal reserve need not be made when the accumulated legal reserve equals the paid-in capital of the Company. After setting aside or reversing special reserve pursuant to applicable laws and regulations and orders of competent authorities or based on the business needs of the Company, if there is any balance, the board of directors may submit a proposal for allocation of the remaining balance and the accumulated undistributed earnings to the shareholders meeting for resolution of distributing bonus and dividends to shareholders.
The Company’s dividend distribution policy is made in accordance with the Company Act and the Articles of Incorporation in consideration of factors including capital and financial structure, operating status, retained earnings, industry characteristics and economic cycle. The dividends shall be distributed in a steady manner. With respect to distribution of dividends, in consideration of future operation scale and cash flow needs, no less than 50% of the distributable retained earnings of the current year shall be distributed to shareholders as dividends, which may be distributed in stock dividend or cash dividend, and the distribution of cash dividend shall not be less than 50% of total dividends, so as to maintain continuous growth.
For information about the accrual basis of the employees’ compensation and remuneration of directors and supervisors and the actual appropriations, refer to Note 18 on employee benefits expenses.
The appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.
Pursuant to existing regulations, the Company is required to set aside additional special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity, such as the accumulated balance of foreign currency translation reserve, unrealized valuation gain/loss from available-for-sale financial assets, net amounts of fair value below the cost of the Company’s common shares held by subsidiaries, etc. For the subsequent decrease in the deduction amount to shareholders’
equity, any special reserve appropriated may be reversed to the extent that the net debit balance reverses.
Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.
As of the date of the Company’s board meeting, the appropriations of earnings for 2017 are not subjected.
The appropriations of earnings for 2016 and 2015 were approved in the shareholders’ meetings on June 13, 2017 and June 16, 2016, respectively, as follows:
Appropriation of Earnings Dividends Per Share (NT$) For Year 2016 For Year 2015 For Year 2016 For Year 2015
Legal reserve $ 289,779 $ 208,606
(Reversal of) special reserve (1,363,634) 1,395,063
Cash dividends 2,148,000 358,000 $ 0.60 $ 0.10
$ 1,074,145 $ 1,961,669 d. Other equity items
1) Exchange differences on translation of foreign financial statements
For the Year Ended December 31
2017 2016
Balance at January 1 $ 23,433 $ 88,771
Exchange differences arising on translating the financial
statements of foreign operations 223 (93)
Share of exchange difference of subsidiaries and associates
accounted for using the equity method (144,644) (65,245)
Balance at December 31 $ (120,988) $ 23,433
The exchange differences arising on translation of foreign operation’s net assets from its functional currency to the Company’s presentation currency are recognized directly in other comprehensive income and also accumulated in the foreign currency translation reserve.
2) Unrealized gain (loss) on available-for-sale financial assets
For the Year Ended December 31
2017 2016
Balance at January 1 $ 1,176,299 $ (1,436,767)
Unrealized gain arising on revaluation of available-for-sale
financial assets 2,266,196 1,642,970
Share of unrealized gain on revaluation of available-for-sale financial assets of subsidiaries and associates accounted
for using equity method 1,664,508 970,096
Balance at December 31 $ 5,107,003 $ 1,176,299
Unrealized gain/loss on available-for-sale financial assets represents the cumulative gains or losses arising from the fair value measurement on available-for-sale financial assets that are recognized in other comprehensive income. When those available-for-sale financial assets have been disposed of or are determined to be impaired subsequently, the related cumulative gains or losses in other comprehensive income are reclassified to profit or loss.
e. Treasury shares
1) Treasury shares transactions for the year of 2017 were summarized as follows:
Purpose of Buyback
Treasury Shares Held as
of January 1, 2017
Increase During the
Year
Decrease During the
Year
Treasury Shares Held as
of December 31,
2017
Share capital held by
subsidiaries 7,518,364 - 7,518,364 - 2) Treasury shares transactions for the year of 2016 were summarized as follows:
Purpose of Buyback
Treasury Shares Held as
of January 1, 2017
Increase During the
Year
Decrease During the
Year
Treasury Shares Held as
of December 31,
2017
Share capital held by
subsidiaries 7,518,364 - - 7,518,364 The Company’s shares held by its subsidiaries at the end of the reporting periods were as follows:
Name of Subsidiary
Number of
Shares Held Carrying Value Market Value
December 31, 2016
Baystar Holdings Ltd. 7,518,364 $ 106,387 $ 74,958 Based on the Securities and Exchange Act of the ROC, the Company shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote.
The purpose of holding the shares is to maintain shareholders’ equity. The Company’s shares held by subsidiaries were treated as treasury shares, and the holders are entitled to the rights of shareholders, except for the right to participate in the Company’s share issuance for cash and vote in shareholders’
meeting when the subsidiary held more than 50%. Other rights are the same as share capital.
The Company’s subsidiary - Baystar Holdings Ltd. (BHL) originally held 7,518,364 shares of the Company’s share capital. In August 2017, BHL sold 7,518,364 shares of the Company’s share capital in a gain of $38,012 thousand, the Company recorded the transaction as an addition of capital surplus under the treasury shares accounting policy.
18. EMPLOYEE BENEFITS EXPENSE, DEPRECIATION, AND AMORTIZATION